Shedding light on small business access to capital

Federal Small Business Minister Brendan O’Connor, seen here at Hanna Coffee and Nuts in St Albans, says the banks have to balance responsible lending criteria when assessing applications from small business.
Arsineh Houspian

by
Sally Rose

COSBOA wants APRA to understand its impact on enterprise. The peak body is also set to launch an annual report of the small business sector’s access to capital. Brendan O’Connor MP says the government is aware of the perennial challenge.

A new joint initiative between the
Australian Bankers Association
and the
Council of Small Business of Australia
(COSBOA) will produce an annual report of the small business sector’s access to capital.

“What we keep hearing is that it’s hard to get money from the banks, but we need a lot more information to take into policy discussions," says COSBOA chief executive
Peter Strong
.

Parameters of the report are still being completed but it is expected to provide data on small businesses lending trends including: how many enterprises got a loan, the average size of those loans, and a breakdown by access to finance across industries. It will also report on how many businesses were rejected for loans and the reasons why.

A group of senior representatives from the Big Four banks plus Bendigo Bank have formed a working group with the peak body and the first report will be presented at COSBOA’s annual summit in July.

Federal Small Business Minister
Brendan O’Connor
says the government is aware that access to capital is a perennial challenge for small business.

“I have met with most of the banks and major lending institutions to talk about ensuring small businesses get their chance, providing they have their business in good order and have a good track record," says O’Connor.

But there is a balancing act between access and responsible lending. “The global financial crisis was precipitated by some getting irresponsible access to credit," says O’Connor.

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“After the GFC banks were slow to provide credit to small businesses but that’s on the improve, I believe partly due to the advocacy of this government on the banks to provide better credit," he says.

The minister argues good economic management has contributed to a better operating environment and says, “a reduction in the cash rate means it is easier to pay off loans."

“Things are getting better, with 2.5 million or thereabout small businesses and a competitive market banks will want their share and small businesses will see an increased likelihood of getting access to capital," he says. “But businesses need to make sure they are ready to take those loans."

“Loss carry back" tax reforms that take effect next June 30 are intended to provide some relief to small business. Strong counts the change as a Labor win. “It means small businesses will be able to access more cash against the previous year’s losses, so they will have more collateral to put against a loan," he says.

But Strong is concerned that another government initiative might undo the benefits.

A lack of transparency around a private study being undertaken by Treasury has spurred rumours that National Consumer Credit Protection legislation may be extended to small businesses that would restrict the ability of institutions to lend to small business.

“Consumer protection sounds good but you can’t apply the same lending principles to businesses as individuals," says
Commercial Asset Finance Brokers Association Australia
spokesman
David Gandolfo.
“Small businesses don’t have a fixed income and they want to expand."

COSBOA is also calling for a comprehensive review of the way the
Australian Prudential Regulation Authorty
impacts on enterprises access to capital.

“I don’t thing APRA has ever given much though to the impact they have on the banks ability to lend money to small business," says Strong.

He credits the prudential regulator with, “doing a good job at keeping the local banking system healthy," but believes it needs to be more aware of the needs of smaller borrowers.

“Many of the requirements APRA places on lenders are linked to the Basel banking reforms but it needs to be more mindful of how the way they interpret the international laws impact local small businesses," says Strong.

Restricting the banks’ ability to make $20,000, or even $5000, small business loans is an unintended consequence of the international banking reforms designed to avert the future need for bailouts of companies that are “too big to fail" argues Strong.

He is in the process of meeting with APRA to begin a dialogue on the issue.